The Coronavirus Aid, Relief and Economic Security (CARES) Act encourages taxpayers to contribute to worthy charitable causes during this unprecedented health crisis. Accordingly, here are three key tax breaks in the new law for individual and corporate donors in 2020.
1. Deduction for non-itemizers: Normally, you may write off contributions to charitable organizations, subject to certain limits, but only if you itemize deductions rather than claiming the standard deduction. Due to massive changes in the Tax Cuts and Jobs Act (TCJA) for 2018 through 2025, you may not be itemizing deductions this year. Thus, you will get zero tax benefit from your charitable contributions.
Fortunately, the CARES Act authorizes an above-the-line deduction of up to $300 for donations made to qualified charitable organizations in 2020. In other words, you can claim this deduction whether you itemize or not. Any excess is carried forward for up to five years. Caveat: The deduction is not available for contributions to private foundations or donor advised funds (DAFs).
2. Individual AGI limit: Previously, the tax law allowed an annual deduction for monetary donations—including those made by credit card online—of up to 50% of your adjusted gross income (AGI). But the TCJA raised this limit to 60% of AGI for 2018 through 2025. Now the CARES Act goes much further.
Under the new law, a donor can write off an amount equal to 100% of AGI. As with the new above-the-line deduction, you may carry over any excess for up to five years. However, this does not apply to contributions to private foundations or DAFs, either.
3. Corporate AGI limit: Similar to individuals, the tax law imposes limits on deductions for charitable donations made by corporations. Currently, the annual deduction for gifts by a corporation cannot exceed 10% of its taxable income. For example, a corporation with $5 million of taxable income is limited to a deduction of $500,000. Any excess is carried over for up to five years.
The CARES Act increases the annual deduction threshold for corporations to 25% of taxable income for 2020. Therefore, the corporation with taxable income of $5 million could write off $1.25 million. Any excess may still be carried over for up to five years.
Finally, note that the usual rules for substantiating charitable deductions still apply. For example, you must obtain from the appropriate charity a contemporaneous written acknowledgement for monetary gifts of $250 or more. Coordinate your charitable strategies based on the new law changes. If you need professional advice, please reach out to your JMF accountant.
For more information about the CARES Act or any other COVID related law change, please visit our COVID19 Tax Resource Page.
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